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Univ. of Toledo College of Law

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Thursday, January 15, 2009

SEC Goes After Georgia-Based Alleged Ponzi Scheme

Another Day, another Ponzi scheme --

On January 15, 2009, the SEC filed a Complaint For Injunctive and Other Relief ("Complaint") in the United States District Court for the Northern District of Georgia against CRE Capital Corporation ("CRE") and James G. Ossie ("Ossie"). The Complaint alleges that, since at least early 2008, CRE and Ossie have raised at least $25 million from over 120 investors. As alleged in the Complaint, CRE offers "30 Day Currency Trading Contracts," which promise a guaranteed ten percent (10%) return (the "ROI") in thirty days. The Complaint also alleges that CRE and Ossie claim that they generate profits sufficient to pay these guaranteed returns by trading United States and Japanese currency contracts as the exchange rate fluctuates. Further, the Complaint alleges that CRE and Ossie told investors that the program involves very little risk because CRE has established a large, defensive reserve fund from which to pay back the 10% ROI, plus redeemed principal. In fact, as alleged in the Complaint, CRE does not generate sufficient returns from currency trading to pay the promised returns. The Complaint alleges that the defendants claim CRE and its program were audited by an outside accounting firm which concluded that the investment program was not a Ponzi scheme. In fact, according to the complaint, CRE operated as a Ponzi scheme by paying all returns to investors from funds contributed by new investors.

The Complaint also alleges that CRE planned to launch a $100 million stock offering in early 2009, pursuant to which CRE intended to sell 50 million shares at $2 per share. In connection with that offering, the Complaint alleges that Ossie told potential investors that CRE business operations had been analyzed by an independent firm for estimation of stock value, and that the firm opined that CRE stock should be worth $40-$45 per share. The complaint alleges that these projections were misleading because CRE was insolvent.

On January 15, 2009, the defendants consented to the entry of an order granting the Commission's requests for (i) a temporary restraining order; (ii) an asset freeze; (iii) an accounting of all funds raised; (iv) the appointment of a receiver for defendant CRE; and (v) an order expediting discovery and preventing the destruction of documents. The Commission's Complaint also seeks (i) preliminary and permanent injunctions against future violations; (ii) disgorgement of ill-gotten gains plus prejudgment interest; and (iii) imposition of civil penalties.

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